How to Get a Lump Sum Withdrawal From a Traditional IRA
An individual retirement account, or IRA, is designed to be a long-term investment vehicle. As such, you should consider taking a lump-sum withdrawal from your IRA only if you are over age 59 1/2, to avoid Internal Revenue Service penalties. Additionally, you should consider the possible tax consequences of taking a complete distribution of your retirement account.
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Determine the financial ramifications of your withdrawal. An IRA account has many tax advantages, including the deductibility of your contributions. Except for IRAs funded with after-tax contributions, this means that none of the money in your IRA has ever been taxed. As a result, when you withdraw from your IRA, all of your distribution is taxable--and at ordinary income rates, not at the more-favorable capital gains rates. Additionally, if you withdraw money before 59 1/2, the IRS will impose a 10 percent penalty tax on the amount of the withdrawal, in addition to regular income taxation. Finally, if you have a sizable IRA, taking a lump-sum distribution could kick you up into a higher tax bracket, something you might be able to avoid if you spread your distribution out over time.
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Contact your financial adviser. Once you have established that you want a lump-sum withdrawal, you will have to speak with a representative at the financial institution that is the custodian for your IRA. Tell the representative that you wish to take a complete distribution from your IRA . You will have to complete an IRA distribution form, which will ask whether the distribution is "ordinary," or whether there are special circumstances, such as a premature distribution before age 59 1/2, or for medical expenses or a first-time home purchase. Additionally, you will have to instruct the firm whether you want a check for your distribution or a wire transfer to another institution, and whether you want any state or federal taxes withheld.
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File your taxes. At the end of the year, you will receive a 1099-R from your financial-services firm, listing the date and amount of the withdrawal. If you kept the distribution and did not redeposit it into another IRA, the entire amount should be taxable income to you, unless you made any post-tax contributions. Transfer the amount from box 2a, "Taxable Amount," to line 15a and 15b of your Form 1040. If the taxable amount is not determined on your 1099-R, generally the amount in box 1, "Gross Distribution," will be your taxable amount. If there is any confusion, you might want to consult a tax adviser.
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